S&P Stock Picks and Pans

Another planned chemical marriage is threatened as Dow Chemical (DOW; 14.60) will not close before Tuesday its planned purchase of ROH, agreed to last July at $78 a share. DOW's agreement Friday with U.S. antitrust regulators was the final regulatory hurdle. We believe DOW still wants to go ahead with the ROH deal, though we think at a lower price. DOW had planned to use proceeds from a terminated joint venture pact with Kuwait to fund part of the ROH purchase price. Our $65 target price reflects risk that the buyout could either not be completed or revised lower. -R. O'Reilly, CFA

CAT reports fourth quarter EPS of $1.08, vs. $1.50, below our estimate of $1.41, as higher operating costs more than offset improved price realization and favorable tax adjustment. We are disappointed that CAT's recent guidance/outlook for 2009 is now being revised downwards. Although we see a challenging first half as economic policy implementation takes time to gain traction, we see this as the bottom of the business cycle and see CAT as well positioned for growth in the second half. We lower our 2009 EPS estimate to $3.40 from $6.40 and our target price by $10 to $45, 13.2 times that estimate. -A. Compton

S&P LOWERS RECOMMENDATION ON SHARES OF KIMBERLY-CLARK TO HOLD FROM BUY (KMB; 51.87):

Based upon information gathered while preparing its fourth quarter results, FRE estimates that it will need another $30-$35 billion from the $100 billion purchase agreement with the U.S. Treasury in order to maintain positive net worth. We believe that losses are now beginning to spread to prime mortgages in FRE's portfolio. In the month of December alone, the delinquency rate for FRE's single-family home loans jumped 20 basis points to 1.72%. We are widening our fourth quarter loss per share estimate from $2.44 to $24.98, and 2009's loss from $3.92 to $25.50. We maintain our $1 target price. -K. Cole-CFA

Fourth quarter adjusted EPS of $0.87 vs. $0.79 is $0.06 above our estimate. Sales grew 1.7% with revenue per requisition up 2.8% and volume down 0.4%, chiefly on much lower drug testing, as we had projected. Excluding drug testing, volume rose 1%. We are encouraged by these metrics and believe DGX's core testing business is steady in spite of economic challenges, indicating only a small decline in physician visits, while esoteric testing continues to grow. DGX guides for 2009 sales growth of 3%, EPS of $3.50-$3.70, and announces a new $500 million stock buyback. Our target price remains $64. -J. Loo-CFA

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